New trade deal between EU and Japan set to slash tariffs on cars

A new free-trade agreement between the European Union (EU) and Japan will see reduced tariffs on Japanese-produced cars entering the EU, while European exporters of agricultural products also stand to gain.

European Council President Donald Tusk (C), European Commission President Jean-Claude Juncker (R) and Japanese Prime Minister Shinzo Abe attend a joint press conference after the EU-Japan Summit in Brussels, Belgium, July 6, 2017. (Photo: NTB/Scanpix)

Published: 9/21/2017Author:Isabelle Kliger

Although tariffs on imports and exports between Japan and the EU are already comparatively low, the new Japan-EU Economic Partnership Agreement (JEEPA), announced in July by EU trade commissioner Cecilia Malmström and Fumio Kishida, the Japanese foreign minister, will reduce barriers on nearly all the goods traded between the two.

EU exporters currently pay some €1bn in annual duties to Japan, with average tariffs of 21 per cent being imposed on agricultural products.

Under the new deal, Japan will lower or eliminate tariffs on imports of EU wine, cheese, pork, and leather products.

For Japan, the greatest advantage will go to its auto industry. Tariffs on Japanese cars exported to the EU stand at 10 per cent, but will be discarded over a seven-year period. For some car components, duties will be cut more quickly. Furthermore, Japan will remove obstacles that prevent European cars from entering the Japanese market.

EU and Japan take prominent role

Announced on the eve of the G-20 summit in Germany, it indicates an interest on the part of the EU and Japan to take a more prominent international role. Meanwhile, for the EU, there was an additional incentive to sign the deal before the twin distractions of Brexit negotiations and national elections take over.

“Although some are saying that the time of isolationism and disintegration is coming again, we are demonstrating that this is not the case,” said Donald Tusk, President of the European Council. “The world really doesn’t need to go a hundred years back in time. Quite the opposite.”

Failed to cover key issues

While some commentators have dubbed JEEPA a dressed-up horse trade designed to ease the exchange of European cheese for Japanese cars, it is true that the agreement has failed to cover some key issues. Time was of the essence and, as a result, no procedures for settling disputes between investors and governments have been agreed, while the issue of data protection remains outstanding.

The two crucial environmental topics of whaling and logging were also ignored, prompting Greenpeace to call it “a huge transfer of power from people to big business.”

Preliminary forecasts suggest that JEEPA could result in a significant increase in trade between the EU and Japan. But, before that can happen, there are many more i’s to dot and t’s to cross. Apart from the remaining issues, the text of the treaty is yet to be finalised, after which it will need to be ratified by Japan’s two houses of parliament, as well as by each European national government. Regional and local European parliaments may also get involved.

However, presuming JEEPA does manage to cut through the tangle of red tape that stands in its way, it will become the largest bilateral trade agreement ever struck by the European Union, accounting for more than 25 per cent of the global economy, and putting the EU-Japanese trading bloc in a strong position to match the North American Free Trade Agreement in both size and scope.

Japan-EU Economic Partnership Agreement

Announced on 5 July 2017, the new Japan-EU Economic Partnership Agreement (JEEPA), slashes tariffs on products traded between Japan and the European Union. Under the new deal, Japan will lower or eliminate tariffs on imports of EU wine, cheese, pork, and leather products. Japanese tariffs on shoes will drop from 30 per cent to 21 per cent, and then to zero after ten years. Tariffs on Japanese car exports to the EU stand at 10 per cent, but will be reduced to zero over seven years. If and when ratified, JEEPA will become the biggest bilateral deal ever agreed by the EU, and one of the largest in the world, matching NAFTA in terms of both size and scope.